Infra stocks shed Budget blues

The infrastructure boom seems to be having a ripple effect on construction, real estate and cement stocks.

Construction stocks had dropped by over 25 per cent immediately after the Budget had clarified that contractors of infrastructure projects would not receive tax exemptions.

For quite a long time, these stocks had been beaten down to levels lower than normal. But the rise in recent times shows that investors are backing the counters, expecting higher earnings in the coming years, according to analysts.

The construction and infrastructure stocks led by Gammon India, IVRCL, Punj Lloyd, Simplex Infrastructure, Patel Engineering and the biggie Larsen & Toubro have since then rallied to new highs.

Similar is the case with cement stocks, which are also recovering from a fall triggered by the government's move to check the rise in the price of the commodity.

Following Finance Minister P Chidambaram's statement, early this month, which allayed fears of a price freeze, the cement stocks have picked up. Further, the demand for cement too has turned out to be stronger than expected in the last few months. ACC is up 37.24 per cent from in last one month to Rs 1,095.80. Ambuja Cement (up 18.15 per cent to Rs 128.90) and Ultratech Cement (up 17.46 per cent to Rs 928.55) are also trading at much higher levels compared to last month.

Among infrastructure developers, Punj Lloyd, Simplex Infrastructure, IVRCL, Gammon India, Patel Engineering and Larsen & Toubro have been trading 15 per cent higher on an average than what they were a month ago.

L&T has been the biggest gainer, rising by 26 per cent to Rs 2,386, over the last one month, followed by Punj Lloyd (up 18 per cent to Rs 283), IVRCL (up 18 per cent to Rs 408), Gammon India (up 20 per cent to Rs 457) and Patel Engineering (up 16 per cent to Rs 471).

Stocks of Gammon and IVRCL, which were trading at a low of Rs 311 and Rs 306 in March, have made a smart comeback since then, rising by 40 and 30 per cent, respectively.

An analyst from a leading brokerage house, who did not wish to be named, said: "Now that the interest rate concerns have slowed down, it is the most appropriate time for these companies to show their potential. With the current spate of orders for building roads, dams and bridges, the demand is set to increase for these companies."

On the cement sector, Ajit Motwani, analyst at Emkay Share and Stock Brokers, said, "Some companies have raised prices by Rs 5-10 a bag and this has resulted in an increase in stock prices. The short-term view is positive as the companies are expected to announce robust quarterly earnings in July."